Q1 2014 Earnings Call Transcript

Operator: Good morning, and welcome to the Johnson & Johnson First Quarter 2014 Earnings Conference Call. All participants will be in a listen-only mode, until the question-and-answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Johnson & Johnson. You may begin.

Louise Mehrotra - VP, IR: Good morning, and welcome. I'm Louise Mehrotra, Vice President of Investor Relations for Johnson & Johnson, and it is my pleasure this morning to review our business results for the first quarter of 2014.

A few logistics before we get into the details. This review is being made available via webcast accessible through the Investor Relations section of the Johnson & Johnson website.

I'll begin by briefly reviewing first quarter results for the Corporation and for our three business segments. Following my remarks, Dominic will provide commentary on the results including some highlights for the quarter a review of the income statement and guidance for 2014. We will then open the call to your questions. Included with the press release that was issued earlier this morning is a schedule of sales for key products and/or businesses to facilitate updating your models. These schedules are available on the Johnson & Johnson website as is the press release. Also please note we will be using a brief presentation to complement today's commentary. The presentation is also available on our website.

Before we begin let me remind you that some of the statements made during this review may be considered forward-looking statements. The 10-K for the fiscal year 2013 identifies certain factors that could cause the Company's actual results to differ materially from those projected in any forward-looking statements made today. The Company does not undertake to update any forward-looking statements as a result of new information or future events or developments. The 10-K is available through the Company and online.

During the review non-GAAP financial measures are used to provide information pertinent to ongoing business performance. These non-GAAP financial measures should not be considered replacements for GAAP results. Tables reconciling these measures to the most comparable GAAP measures are available in the press release and on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com.

A number of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide lists acknowledgement of those relationships.

Now I would like to review our results for the first quarter of 2014. Worldwide sales to customers were $18.1 billion for the first quarter of 2014, up 3.5%. On an operational basis, sales were up 5.3% and currency had a negative impact of 1.8%. In the U.S., sales were up 2.2%. In regions outside the U.S., our operational growth was 7.9% while the effect of currency exchange rates negatively impacted our reported results by 3.4%. On an operational basis, Asia-Pacific, Africa region grew 10.3%, the western hemisphere excluding the U.S. grew by 7.1% and Europe grew 6.6%.

Transcript Call Date 04/15/2014

Operator: Mike Weinstein, JPMorgan.

Michael Weinstein - JPMorgan: So Dominic let's take it back to three months ago at the Analyst Meeting and even on our subsequent call in February, I pushed a little bit on the sales guidance for the year, and I think I talked at the con that you would be a bit conservative and now you come in here and you reported a better than expected first quarter and you've raised your guidance with the year. So can you talk a little bit about from the January call let's say, what has increased your confidence and how much of that is from OLYSIO which obviously had much stronger quarter this quarter. Can you talk about that product's performance and its sustainability?

Dominic J. Caruso - VP, Finance and CFO: Sure, Mike. Well, you're right. You did challenge us on that, presumed level of conservatism. I would say just as a way of background, we are trying to forecast new product sales in a dynamic healthcare environment and we're also trying to forecast various economic trends and utilization rates in the marketplace. So we do our best to give you our sense for what we're seeing at the time. What we're seeing now is a better overall sense of the launch, particularly the launch of the new products within Pharma. And OLYSIO as you pointed out has done remarkably well. Yes, it's done better than we expected. It's primarily due to the fact that the liver society issued guidelines in January, recommending the use OLYSIO along with the product from Gilead, Sovaldi, and that has been adopted by the community, by the medical community as a standard of care based on the liver guidelines of the society of liver specialist guidelines. So that's something that we learned after our guidance. We saw take off and we are very pleased with the results, and if you look at the total increase in our sales guidance, which is about roughly $1 billion, I would say the majority of that is due to the fact that OLYSIO is performing much better than our earlier expectations and we're very pleased with that and obviously more patients are gaining the benefit of utilizing this new therapy. As far as sustainability is concerned, I think you know that there are competitive products on the horizon. The goal of searching for interferon re-therapy seems like it'll be a reality and there are products that are expected to be approved later this year. So, we'll have to wait and see whether those products are in fact approved and then of course, we'll reassess the long-term outlook for OLYSIO given any new product or new competition. Just a reminder, we are also studying OLYSIO in a Phase 3 clinical trial along with Sovaldi. So, we'll have that data after that trial's conclude and it'll give us a better idea of the overall sustainability as well.

Michael Weinstein - JPMorgan: Dominic, just one follow-up on the EPS guidance for the year. It sounded from what you were saying in the FX line that there's another $0.06 of earnings cushion or upside based on real-time FX rates if they were to hold that you were not including in the guidance. So, one, is that right? And two, I assume that would offset the impact of the OCD divestiture. Is that a fair way to look at it?